Senior Correspondent

FOREIGN aid will be stripped of almost $3 billion, with the government breaking its pledge to spend more on overseas development.

The government had promised to devote 0.5 per cent of gross national income to foreign aid by 2015 — raising total spending to as much as $8 billion. But that increase will now be delayed another year, despite Labor renewing the 2015 pledge in December.

The move was slammed last night by aid groups, with Oxfam chief Andrew Hewett saying: "Australia's aid program saves lives, and it could save more lives more quickly without these cuts."

World Vision's Tim Costello said the move was disappointing, given that Australia was in a strong position after the global financial crisis. "We made promises to the world and to the poor, so they will raise eyebrows that we reneged on that promise so quickly," he said.

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Deferring the target will save the government $447 million this financial year, with savings almost doubling annually over the next three years, to a total of $2.9 billion.

Fears of aid cuts in the run-up to the budget generated a vocal campaign from charity groups.

But Mr Swan denied the government was balancing its books at the expense of the world's poor, and insisted Australia could be proud of what it would achieve in overseas development.

He rejected suggestions the cut marked a vote of no confidence in Australia's overseas aid agency AusAID to deliver the extra money after recent heavy criticism over payments to consultants and wasteful spending.

Australia will also lose 44 diplomats, but gain a new embassy in Senegal.

About $72 million will be spent on private contractors to secure the Australian embassy in Iraq.

The government is yet to reveal which Australian city will host G20 leaders in 2014, but has devoted $370 million to running costs and security for the summit.

Despite a slower rate of spending, AusAID will continue to grow by $400 million, to $5.2 billion overall, with 44 additional staff.

Private charities will get a $194 million slice of the budget while most official aid continues to be focused on Asia and the Pacific, with about 30 per cent of the aid handed to international funds such as the World Bank and Asian Development Bank.

About $154 million will be devoted to expanding Australia's ties with six United Nations agencies, including UN Women and the World Health Organisation, but no additional money has been allocated to the campaign to win a temporary seat on the UN Security Council before a vote in October.

Burma stands to be rewarded for its political reforms in the past year, with $11 million in extra aid for maternal health and education.

Indonesia ranks as Australia's largest aid recipient at $578 million, with Papua New Guinea, engulfed by political turmoil over recent months before scheduled national elections, ranking second at $492 million.

The government said despite meeting a 0.5 per cent target for aid a year later, Australia was on track to have doubled overall spending on foreign development between 2007 and 2015.

It said Australian aid had supported an additional 120,000 school enrolments in the Pacific, Papua New Guinea, the Solomon Islands and Vanuatu.

But it said serious challenges remained, with 1.3 billion people living in extreme poverty in the region and around the world — with another 1.1 billion, many in Asia, who lived just above the poverty line on no more than $2 a day.

"We also provide aid because Australians find it unacceptable that people across the globe still live without sufficient income to lead a decent life, or to buy basic medicines or send their children to school," Mr Swan said.

Swan denied the government was balancing its books at the expense of the world's poor.